Best Buy Increases Its Emphasis on Private Label

A couple weeks ago, we had an item in our newsletter about the possible spread of private label into automobiles (if Saturn dealers get their wish to buy the brand name from GM). One of the things that has been fascinating in recent years has been the spread of private label out of the fast-moving consumer goods category. As the recession bites and people are looking for savings, many more are experimenting with private label products in grocery and often finding that they are satisfied with the quality. I wonder if their experiences will make them more willing to try private label products in other categories.

Best Buy seems to be betting that they will, and are expanding their PL offerings with significant success. Their own brands of TVs (Insignia and Dynex) now account for about 5% of the total flat-screen market. One effect of this has been to freeze out low-priced suppliers, such as Vizio, whose products might compete with Best Buy's.

The Irvine, Calif., television maker has talked with Best Buy about selling in its stores, but worries that Best Buy would give its products short-shrift. "We couldn't go in and be constrained by comments like, 'Don't hurt my house brand,'" said Vizio co-founder Laynie Newsome.

Best Buy acknowledges that it is choosing not to carry some low-priced electronics brands that would compete with its private-label offerings.

One of the big differences between private label CPG and electronics or some other consumer products is that there's a certain amount of ego wrapped up in owning a prestige brand of TV or cell phone (or shoes or cars) that is considerably less of a factor with mayonnaise or ibuprofen. Another difference is that private label CPG has had its greatest success in products viewed as commodities by consumers; in non-commodity categories, brand name suppliers have managed to maintain share in many cases by innovating. Categories, such as consumer electronics where innovation is so rapid, seem like unlikely places to find private label success. But it appears that Best Buy is actually doing some innovating.

Best Buy believes it can prosper in private-label electronics -- an area that has historically flummoxed U.S. retailers -- by using the mountains of customer feedback it collects from its stores to make simple innovations to established electronic gadgetry. […]

Popular products included a global-positioning system with Google Inc. search capabilities, a high-definition radio receiver that displayed the names of songs, and stripped-down digital picture frames without pricey extras such as music-players.

It seems to be working: "Sales of Best Buy private-label electronics soared 40% during the past fiscal year…"